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Buachaill, Barrister
Category: Law
Satisfied Customers: 10955
Experience:  Barrister 17 years experience
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I'm looking to buy a 25% share in a local gym where I live.

Customer Question

Hi, I'm looking to buy a 25% share in a local gym where I live. There are 3 current owners with a 45/45/10% share. It's a Ltd Company with the 3 as directors. 2 of the 3 iwners have decided to aell there shares as the travel and time committments are too much with their full time jobs. They've provisionally agreed to sell their combined 55% share to the 3rd owner. She has approached me as she needs help to raise £11k to buy the other 2 out. I've offered £5500 for a 25% share which she's agreed. However she's had a hard time getting on with the 2 she's buying out and wants a few months for the dust to settle before I come on board and take 25%. So she's looking for me to pay £3500 by the end of November so she can buy the other 2 iut now and get her listed as 100% owner at companies house and then in Feb/Mar 2016, happy for me to pay the last £2K snd get 25%.
I'm worried that I'll pay £3500 nowvand she'll not want to honour the deal and sell me the 25% stake for the remaining £2k in Feb/Mar.
What would your advice be? Do you think I should insist on paying the £5500 etc now and getting the 25% ownership / directorship now ie in November at the sane time the other 2 owners are selling their shares or arevthere other suitable options? please ket me know your thoughts?
Submitted: 2 years ago.
Category: Law
Expert:  Buachaill replied 2 years ago.
1. Your best option here would be to commit any agreement to writing, as you are on peril of the 25% not being given to you if you simply advance the money and don't immediately get your 25% shareholding. YOu might find that you will merely get your money repaid as a loan without any shares. So I would advise you to commit the agreement to writing and get this current owner to sign up to the agreement. Then you can advance you money to enable them to buy out the other two co-owners. There is nothing wrong with waiting until you get your shares but you need a written agreement which ensures you do get your shares. Additionally, you need a non-dilution clause in any agreement that this person does not, when they are 100% owner issue more shares and dilute you out.
Customer: replied 2 years ago.
Thank you so much..... Should I pay a solicitor to deal with all the paperwork / agreement etc to ensure there are no loopholes where in the worst case scenario, the owner could wriggle out OR perhaps even say, I want to get my 25% at the same time as I part with any money. Also again, should I get a solicitor to oversee this, eg where I pay my £5500 etc to the solicitor and they only pay it actoss when all the Companies House paperwork showing my 25% is in place, a bit like when buying a house?
Expert:  Buachaill replied 2 years ago.
2. It would be better if you could get a solicitor to reduce the deal to writing for you. However, I would not let getting your shares immediately get in the way of the deal. It is OK to part with your money provided you are properly legal ly insulated. However, to do so without having the agreement written down is foolish. You can adopt a shares and cash exchange approach but if this would alienate the two selling shareholders, then you are better off await a later date for completion of the deal and advance your money but get the shares at a later date. Also consider getting a shareholders' agreement to govern the relationship between you and the majority shareholder you are buying the shares from.
Customer: replied 2 years ago.
Thank you so much for your kind advice. I will now be buying a 33% stake in the business for £7,000.The majority shareholder who I'll will be in business with, will become a 100% shareholder later this week and has verbally agreed to transfer 33% to me as soon as the following day. However she needs £2500 from me first to buy out the other two existing shareholders.She has agreed to put everything in writing, ie that she'll sell me a 33% share in the business on x date, (ie Friday this week) for £7k and that I will get xy and z benefits for being a shareholder / director and that I will be paying £2500 up front. Eg Wed/Thur of this week and the remainder of the £7k on completion / transfer of the shares on Friday. NB these benefits including things such as free famimy gym membership, (as it's a gym that I'm buying a share of).I will look to set up a shareholders agreement on Friday when I get a 33% share.The question I have is:
A) Should I insist on getting the written agreement we have in place from Wed/Thu when I hand over the first £2500 signed by witnesses and if so, should I have 1 or 2 witnesses and can they be friends or relatives, a non friend / relative or do they have to be professional people, (doctor / accountant etc)?
B) What points should I include in a shareholders agreement, ie also bearing in mind I will be non executive without a salary and thus my concern will be ensuring within say 2-3 years, I'm getting a regular monthly income / share of the profits, so it'll be in my interest that the majority shareholder who is executive and will be taking a salary soon, isn't just paying herself a big salary and spending / investing the remaining profits but that her salary is modest and that she is maximising profits after a moderate reinvestment of profits each year? Could I for example cap the benefits / salary of the main shareholder to an agreed starting salary that will increase at no more than the rate of inflation unless orherwise agreed by me.
C) Can I ask for first refusal of the sale of any shares if hers in future and at the current market price but where I can choose how many of the ones she is selling, I can actually buy, ie if she is selling 66% and I can only afford 20%, can I ask that I buy 20% at the market rate?
D) How about the fact that majority shareholders can out vote minority shareholders and get them off the board. How can I peotect from this in the shareholders agreement?
E) I may look to start coaching at the gym in a year or so. Should I build this into the shareholders agreement to ensure what has been agreed verballly, isn't later refused.Thank you so much fir your support here.Lorenzo